Summary

• Exports recorded double-digit growth for the second consecutive month, with growth accelerating to 45.3% in May (Apr: 37.3%). This strong performance was underpinned by the continued semiconductor upcycle, alongside stronger supply chain diversification amid ongoing geopolitical uncertainties. Regional trade activity is expected to remain supported by improving manufacturing conditions, as the latest Purchasing Managers’ Index (PMI) readings for China, the US, and EU continue to signal expansion. Looking ahead, the US–Iran de-escalation of tensions and continued safe passage through the Strait of Hormuz will remain important determinants of the global trade outlook.
• Headline inflation edged up to 2.0% in May (Apr: 1.9%), driven primarily by firmer price increases in food and non-alcoholic beverages (May: 1.4%; Apr: 1.2%) and housing and utilities (May: 1.2%; Apr: 1.1%). Meanwhile, inflation in transportation (May: 3.8%; Apr: 4.1%) and restaurants and accommodation services (May: 2.5%; Apr: 2.6%) moderated. Looking ahead, inflation is expected to remain broadly consistent with MARC Ratings’ 2026 forecast of 2.1%, supported by easing energy prices that should alleviate cost pressures following the de-escalation of US–Iran tensions. In line with the recent moderation in crude oil prices, we have revised our 2026 Brent crude oil price forecast to around USD80 per barrel from the previous range of USD80–USD90 per barrel.
• As of month-to-date (MTD) 22 June, the ringgit depreciated against the US dollar to 4.15 USDMYR from 3.97 USDMYR on 1 June, driven mainly by external factors, including a stronger US dollar, elevated US Treasury (UST) yields and expectations of a more hawkish Federal Reserve (Fed). Foreign portfolio flows also turned negative in May, recording net bond and equity outflows of RM4.3 billion (April: +RM3.8 billion) and RM3.7 billion (April: +RM0.2 billion). Looking ahead, MARC Ratings expects the ringgit to trade within the 4.00–4.15 USDMYR range, considering a wider Malaysian Government Securities–US Treasury (MGS-UST) yield differential in favour of continued US dollar strength, although record high exports and foreign direct investment (FDI) flows will continue to provide a buffer to the ringgit.
• As of MTD 22 June, MGS yields rose modestly by 1–3 bps across the curve, with the 10-year yield closing at 3.61% (May: 3.59%), largely tracking higher UST yields as markets priced in at least one additional 25bp Fed rate hike by December. Additionally, firmer domestic inflation in May also contributed to the uptick in yields. However, the increase in yields remained limited as inflation remains low and continues to track within Bank Negara Malaysia’s 2026 forecast range of 1.5%–2.5%. Meanwhile, easing geopolitical tensions following the US–Iran ‘Memorandum of Understanding’ signed on 17 June also helped moderate inflation concerns moving forward. Looking ahead, MARC Ratings expects the 10-year MGS yield to trade within the 3.60%–3.70% range by year end, with external factors, particularly hawkish Fed policy expectations and a higher UST yield, to remain the key drivers.